Mark Carney says forward guidance should boost economy

Mark Carney Mr Carney took over as Bank of England governor in July

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New Bank of England Governor Mark Carney has said that his new regime should boost the UK's economic growth.

He told the BBC that keeping interest rates at the current level until unemployment fell below 7% was expected to boost the economy by "more than half a percentage point of GDP".

But he warned that this prediction should be taken "with a grain of salt".

He also told the Today programme it was "striking" that there were no women on the Monetary Policy Committee (MPC).

The MPC is the committee at the Bank of England responsible for setting interest rates.

Mr Carney said that while he was not responsible for appointing members of the MPC, it was important to "grow top female economists all the way through the ranks", so there would be more female candidates for MPC positions and qualified candidates to be a future governor.

Mr Carney has taken up his position as more and more data on the UK economy shows it is picking up steam.

On Thursday, the Organisation for Economic Co-operation and Development (OECD) said the recovery was "firming" in June.

Recent figures have shown activity in manufacturing, services, construction and the housing sectors all gathering pace.

On Wednesday, the Bank of England revised its forecast for economic growth this year up from 1.2% to 1.4% and for next year from 1.7% to 2.5%.

'Considerable number'

On Wednesday, Mr Carney gave his first news conference since taking over at the Bank of England, setting out his new regime of forward guidance.

Under this system, the MPC will not consider raising interest rates until the unemployment rate falls below 7%, which he predicted would take about three years and the creation of 750,000 jobs.

There are get-out clauses in this policy if there are threats to financial stability or a danger of inflation getting out of control.

Mr Carney said that Bank of England economic models had assessed the differences between what would happen with current market interest rates without the forward guidance and "what would happen if interest rates stayed at the same level until effectively that [7%] unemployment threshold was reached about three years from now".

"It's more than half a percentage point of GDP... which is a considerable number," he said.

He added that "as with any economic prediction you have to have some humility so take all of this with a grain of salt".

The US Federal Reserve and the European Central Bank have already provided forward guidance on their interest rate policies.

Prime Minister David Cameron was asked on BBC Breakfast where he thought the extra 750,000 jobs would come from.

"We have seen the creation of 1.3 million new private sector jobs over the last three years and they're going to come from the private sector," he said.

"We need to encourage small businesses to take people on. We need to, as we are, back apprenticeship schemes and things like that, so I'm confident the jobs will be there."

'Socially useless'

Mr Carney also stressed the importance of banks lending to businesses and creating jobs.

"The focus [of a bank] has to be on the real economy - what it does for businesses making investments, what ultimately it means for jobs in the economy, and it's the loss of that focus… that becomes socially useless."

Asked about financial institutions selling products to people who did not need them, Mr Carney stressed that such behaviour would be in the remit of the financial conduct authority.

But he added: "It's that attitude in institutions that undercuts their effectiveness, is bad for the system and to the extent that, with our powers we can… we'll work to snuff them out."


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  • rate this

    Comment number 316.

    Firstly the "employment" figures are a fallacy, secondly this strategy will lead to house price inflation followed by a crash once realistic interest rates kick in. The whole thing is a nonsense and stinks of government interference in what is supposed to be an independent BoE

  • rate this

    Comment number 315.

    Mark Carney & the ConDem govt are the same snakes in a cesspit. They are all in it together, allowing 0hrs contracts, PayDay lenders charging 5000%APR to the most vulnerable. Scamming voters & showing utter contempt for ordinary working people. Time for these jokers to go, and take the labour party with them. I've no time for any of them

  • rate this

    Comment number 314.

    Our work experience Chancellor, the boy Gideon, went to great and lengths and MASSIVE cost to hire this bloke....

    .....and his "policy" for the UK economy is basically.....

    .....carry on doing what his predessor did.....

    ....our Chancellor has NO JUDGEMENT WHATSOEVER......

  • rate this

    Comment number 313.

    Mark Carney will be chauffeur driven. He will get out of his sleek car and enter a building surrounded by glass skyscrapers. He will talk to other 'suits' and at the end of the day he will go home to his, most likely, gated detached property. He has one thing in common with Cameron, Osbourne and IDS. They are insulated, they don't feel the pain of majority. Why should they?

  • rate this

    Comment number 312.

    298 RICH588
    Comment number 298 is an Editors' Pick
    Now its the governments turn do away with zero hours contracts increase the minimum wage to a living wage reexamine government contracts and make sure all contractors are paying a living wage and think about giving tax relief on rent so those working do not need state help.

    Brilliant; inflation has just risen to 10%

  • rate this

    Comment number 311.

    If Gideon had been in when the financial crisis happened gawd knows what he would have done - panicked most likely with his History degree because his one track mind about austerity shows the narrowness of thought and the financial crisis needed i am sure people with big brains to have made the decisions at that time.

  • rate this

    Comment number 310.

    @307 plotinus
    And that's why 52% of people in Britain cannot afford to live for a whole month on their paycheck/benefits.
    At the end of the day any government will tallk up their achievements and spin the numbers to suit their re-election.
    Only the pockets of the haves will be filled more, the have nots will only see the holes in their pockets widen.

  • rate this

    Comment number 309.

    And if there is no growth ?

  • rate this

    Comment number 308.

    No294 Auntie,
    I will make it simple for you, if 'Pasty George' had been chancellor and confronted with a 8-9% fall in GDP, like most developed countries, do you think he would have been in a 'mess'.

  • rate this

    Comment number 307.

    @296 Grounder
    Printing money to fund public spending is verboten
    Sadly although forbidden it is one of the tools that has been used by those that have their own currency and it is the main reason, IMO, why the UK has fared better in general than those in a currency block.
    In sum what has been going on is devaluation - devaluation of the currency and devaluation of the debt.

  • rate this

    Comment number 306.

    Would the 'Global Crisis' have been cancelled if 'Pasty George' had been in Downing Street?

    No, but he wouldn't have borrowed any where near as much as Brown/Balls did before the crisis hit. So we wouldn't be in such a deep debt reduction cycle.

  • rate this

    Comment number 305.

    ....City politicians for city bankers and back...
    The PM personally blocked EVERY single bill to break up banks and restrict them in the last 3 years (EVERY! as small at is was) in Brussels ....I guess he had always the people outside London on his mind....

  • rate this

    Comment number 304.

    What a lad, he starts a new job, then sets a threshold level before he has to actually do any work - that won't be met for 3 years. I wish I could do that with my job

  • rate this

    Comment number 303.

    It's a load of codswallop this recovery. All figures on a balance sheet but in the real world of food banks and payday loan sharks it just doesn't compute and means nothing.

  • rate this

    Comment number 302.

    7 Minutes ago
    What this country needs is regional party's like a Midland Party


    You'll be lucky, as a Brummie myself I'm fully aware that the Northerners all think we're southerners & the Southerners all think we're northerners.

    The Midlands much like the South West is the bit of England that everybody forgot.

  • rate this

    Comment number 301.

    A "Prediction" that should be taken "with a grain of salt"

    Translation? = Just more pointless hot air and you have just wasted your time listening/reading it

  • rate this

    Comment number 300.

    "should" "expected"?

    On what he is getting paid shouldn't that be "will"

  • rate this

    Comment number 299.

    No294 Auntie,
    Most fair minded people will have noticed that you have failed to answer the simple questions posed.
    e.g Would the 'Global Crisis' have been cancelled if 'Pasty George' had been in Downing Street?

  • rate this

    Comment number 298.

    Now its the governments turn do away with zero hours contracts increase the minimum wage to a living wage reexamine government contracts and make sure all contractors are paying a living wage and think about giving tax relief on rent so those working do not need state help

  • rate this

    Comment number 297.

    Whatever Carney. You're still inflating my savings away so you can **** off.


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